CEOs are measured on everything. Company earnings, culture, leadership, employee retention, business trajectory, and so on. It’s no wonder the corporate executive role is ranked No. 7 on Forbes’ list of the 10 Most Stressful Jobs for 2016. But what leadership qualities actually make up a great CEO, and what defines great in the first place?
At Glassdoor, employees tell us what they think about how their CEOs are leading companies, and we use this to calculate a CEO approval rating, measuring the “greatness” of each CEO across more than 580,000 companies. Our chief economist recently took this data a few steps further to conduct our first-ever study on what impacts CEO approval ratings. Through the new study, What Makes a Great CEO, we learned which key factors predict CEO approval, and which factors have no effect at all.
On Glassdoor, employees have the option to approve, disapprove, or offer no opinion of the CEO, which is reported as a CEO approval percentage. Meanwhile, overall employee satisfaction is measured on a 5-point scale. These two data points represent a big connection. A 1-star increase in overall employee satisfaction predicts a 36.9 percent improvement in CEO approval.
This finding suggests that if a CEO’s approval rating is low, any efforts to improve employee satisfaction will also be a challenge, and vice versa. In other words, if you’re trying to improve overall employee satisfaction, make sure you’re working closely with your CEO to deliver messages that resonate throughout your workforce.
Senior Leadership Matters Most
Beyond employee satisfaction, which is a strong indicator, senior leadership is the strongest predictor of CEO approval. In fact, a 1-star improvement in senior leadership rating predicts a 37.7 percent improvement in CEO approval.
This can mean different things at different organizations. If your leadership team is strong, that could be attributed to your CEO’s ability to put the right people in place to lead teams. It could also be that great leadership inspires more great leadership and everyone is rising to the high bar the leadership across the board has set.
Take this into consideration when determining promotions and career trajectories within your organization. Is there someone who performs well, but people have trouble working with or for? Think about how putting an employee like this in a leadership position could affect your company culture and employee satisfaction overall.
Career Opportunities and Compensation
Cultivating career opportunities can have a positive impact on employees’ perception of the CEO. Our research tells us that career opportunities rating and compensation and benefits rating both had a statistically significant, positive impact on CEO approval ratings. A 1-star improvement in satisfaction with career opportunities predicts a 3.1 percent improvement in CEO approval, and a 1-star improvement in compensation and benefits ratings was associated with a 1.6 percent bump in CEO approval. It’s perhaps no surprise that employees who feel like they have room to grow and are paid fairly along the way have a higher level of satisfaction with their CEO.
Offering pathways for employees to grow and offering fair compensation packages can pay dividends in not only the way employees feel about their jobs, but also about the person leading the company.
Watch Out for Work-Life Balance & CEO Pay
Surprisingly, the research found that higher satisfaction with work-life balance predicts lower CEO approval ratings. Don’t get me wrong, everyone likes a little work-life balance! But a 1-star decrease in work-life balance rating predicts a statistically significant 2.9 percent increase in CEO approval rating. Leaders take note: employees may be willing to trade off some work-life balance to work for an inspiring CEO.
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When the average CEO earns 204 times more than median worker pay, it’s no surprise that an outrageous CEO compensation package can have an impact on an approval rating. Two data points should inform a discussion about your CEO’s compensation package:
- Higher CEO compensation is statistically linked to lower CEO approval ratings on average.
- However, the negative impact of CEO pay shrinks dramatically when measures of company culture are taken into account.
Find the right balance at your organization by examining how your work-life balance ratings compare to ratings around culture and senior leadership, and use that data to inform discussions around making improvements. If your CEO is overpaid, having an excellent culture can offset the potentially negative feelings employees may have about this; but without an amazing culture, a CEO’s unfair compensation will certainly affect your workforce in a negative way.
Being a founder predicts a statistically significant 3.2 percent higher CEO approval rating on Glassdoor than being an externally hired or internally promoted CEO. Does this mean you should fire your existing CEO and go back to hire the founder? Of course not.
Many founder-CEOs are able to impart the vision and passion who got the company off the ground in the first place — but that doesn’t mean only founders can evoke that same sentiment. Advise your CEO to inspire your workforce by going back to basics and emphasizing the company’s mission and vision to get the same kind of response from employees.
They don’t have an effect. Our economic research looked at personal characteristics like gender, age, and education and these factors have no statistical effect on CEO approval ratings.
As you think about how this analysis of CEO approval can help your organization, remember that any individual, regardless of personal characteristics, has the ability to become a top-rated CEO by focusing on culture, leadership and career opportunities. Top leaders should also ensure fair compensation across all levels, and think like a founder. In a highly scrutinized role like CEO, a little supportive data goes a long way in reminding leaders that they can do their best with what they already have going for them.